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Japan's Abe Explains Why Government Knows Best

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Faced with dramatically declining demographics, sliding macro fundamentals, cost pressures on firm margins, slumping support among the people, and a recently rising JPY, Shinzo Abe, Japan's Prime Minister has decided an Op-Ed is the way to go to unveil his 'government knows better' concerted effort to raise Japanese worker's pay. The collective denial is strong among the leadership - no better expressed than this gem: "Abenomics, I am proud to say, has been successful in a more fundamental sense: we have rebooted Japan’s collective psyche." However, Abe's approval rating has never been lower - falling dramatically in the last month or two.

 

 

Behold The Propaganda... Japan's Coming "Wage Surprise"

Authored by Shinzo Abe, originally posted at Project Syndicate,

The year 2013 saw the Japanese economy turn the corner on two decades of stagnation. And the future will become even brighter with the appearance of what we are calling the “wage surprise.”

Intensive discussions since September among Japanese government, business, and labor leaders have been geared toward setting in motion an upward, virtuous cycle whereby increased wages lead to more robust growth. I have taken part in two of the four meetings so far, joining our finance minister, economy minister, and labor minister, as well as industry and labor leaders like Akio Toyoda, the head of Toyota Motors, and Nobuaki Koga, who leads the Japanese Trade Union Confederation. Each time, I have come away from the meeting feeling confident and invigorated.

Let’s face it. Deflationary pressure in Japan – and only in Japan – has persisted for well over a decade. At the beginning of my premiership, I launched what observers have called “Abenomics,” because only in my country had the nominal wage level remained in negative territory for a staggering length of time.

I was appalled when I first saw the statistics: Japan’s wage level since 2000 has fallen at an average annual rate of 0.8%, compared to average nominal-wage growth of 3.3% in the United States and the United Kingdom and 2.8% in France. In 1997, wage earners in Japan received a gross total of ¥279 trillion; by 2012, the total had fallen to ¥244.7 trillion.

In other words, Japan’s wage earners have lost ¥34.3 trillion over the last decade and a half – an amount larger than the annual GDP of Denmark, Malaysia, or Singapore. Only when this trend is reversed can Japan’s economy resume a long-term upward trajectory.

Meanwhile, Japan’s companies are no longer poorly capitalized. I, for one, remember how low the net-worth ratio for Japanese corporations was 15 years ago – below 20%, compared to more than 30% in Europe and the US. As a result, economists said, Japanese corporate behavior would be characterized by over-borrowing.

That is no longer the case. Thanks to the continued surge in corporate profitability and firms’ sustained deleveraging efforts during the last decade and a half, indebtedness has fallen dramatically. In terms of the net-worth ratio, corporate Japan is now on a par with Europe and the US.

Abenomics, I am proud to say, has been successful in a more fundamental sense: we have rebooted Japan’s collective psyche. In the year since my government took office, a mindset of resignation has given way to one of limitless possibility – a shift symbolized for many by Tokyo’s winning bid for the 2020 Olympic and Paralympic Games. As a result, many Wall Street investors have bought the narrative and gone long on Japan.

That is what Abenomics’ first two “arrows” – bold monetary policy and flexible fiscal policy – have achieved so far. How about the third arrow, a set of policies to promote private investment so that productivity growth sustains Japan’s long-term recovery?

Some say that, unlike the first and second arrows, the third is hard to come by. I do not disagree: by definition, structural reforms take more time than changes in monetary and fiscal policy do. Many will require legislation, on which my colleagues in the Diet have been spending much of their time over the last couple of months. During this process, with its seemingly endless and convoluted floor debates, observers should not lose sight of the forest for the trees.

From joining the negotiations for the Trans-Pacific Partnership (TPP) to introducing specially deregulated zones (my own office will oversee their implementation), my government is committed to catalyzing economic recovery by all means available. Here, the wage surprise stands out, because only when the long-missing link between corporate profitability and wages is restored will investment in houses, cars, and other durables, and household consumption in general, finally rid Japan of its deflation and put its economy on a sustained growth path.

The wage surprise draws its inspiration from the Netherlands, where a consensus emerged in the early 1980’s that in order to sustain employment, the burden of taming rampant inflation should be shared by employers and the employed. That consensus was enshrined in the 1982 “Wassenaar Agreement,” named after The Hague suburb where it was forged.

Japan is now witnessing the emergence of a similar national consensus, or, rather, the Dutch consensus in reverse: a shared sense that the government, major industries, and organized labor should work together to increase wages and bonuses (while facilitating incentives that could enhance productivity).

Needless to say, wage levels ought to be determined solely by management and workers. But it is equally true that the emerging consensus among the government, business leaders, and trade unions already has led a growing number of companies to promise significantly higher wages and bonuses.

This is the essence of the wage surprise. It will be an entirely new phenomenon, one that, together with the massive ¥5 trillion fiscal stimulus, will more than offset the potential negative effect of a sales-tax increase. Most important, it will continue to put Japan’s economy on a sustainable growth trajectory. Of this I am certain.

 

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Mon, 01/06/2014 - 13:34 | 4304698 LawsofPhysics
LawsofPhysics's picture

"Deflationary pressure in Japan" - LMFAO!!!

Deflation in what?  Has the cost of living decreased?

Have health care costs decreased? 

Have energy costs decreased?

Do the Japanese people and Yen have more purchasing power?

Goes double for all those retirees...

I think not.

moron.

Mon, 01/06/2014 - 13:32 | 4304713 PR Guy
PR Guy's picture

 

 

This guy knows best!

 

http://www.youtube.com/watch?v=7QPxDugs0Nw

Mon, 01/06/2014 - 13:41 | 4304746 Cult_of_Reason
Cult_of_Reason's picture

Re: "...should work together to increase wages and bonuses..."

This is hilarious magical thinking.

Mon, 01/06/2014 - 14:00 | 4304820 malikai
malikai's picture

Hi, we're from the government.

We're here to help.

We know what you need. And we're going to give it to you good and hard.

Mon, 01/06/2014 - 23:37 | 4306762 StychoKiller
Mon, 01/06/2014 - 13:48 | 4304762 Hedgetard55
Hedgetard55's picture

Abe's little piece of propaganda is a keeper for sure. It will be interesting to revisit it in 3 years after their bond market/currency implosion.

Mon, 01/06/2014 - 14:41 | 4305005 Anusocracy
Anusocracy's picture

I wonder if he can rub his tummy while patting himself on the back.

Because, eventually, he will be reduced to just rubbing his tummy.

Mon, 01/06/2014 - 13:30 | 4304702 NoWayJose
NoWayJose's picture

Most big Japanese companies already have shifted production and factories to China, so there are no wage increases from that side.  Any companies within Japan that still produce anything or that provide services now have a new labor pool to pull from - seniors - who will work for less pay and benefits.  It's just like the US - there is no way that wages will go up because there is no way for companies to make money by paying higher wages to workers living in Japan.

Mon, 01/06/2014 - 15:18 | 4305116 Yenbot
Yenbot's picture

In which case, there is no way workers in the US and Japan can afford to purchase housing, food, transportation, and health care. See the conundrum? Poor workers can NOT consume.

Abe's truth is: repatriate production, increase wages- or die.

Mon, 01/06/2014 - 13:30 | 4304703 Spungo
Spungo's picture

Are you telling me that making my income fall in real terms as wages lag behind inflation is a good thing?
/Jessie Ventura

Mon, 01/06/2014 - 13:31 | 4304710 bingo was his name
bingo was his name's picture

If you like your deflation, you can keep your deflation.

Mon, 01/06/2014 - 13:35 | 4304724 Greenskeeper_Carl
Greenskeeper_Carl's picture

Decades of govt interference and central planning have failed, so we need MOAR central planning and govt interference! FOARWARD!

Mon, 01/06/2014 - 13:39 | 4304739 TrustbutVerify
TrustbutVerify's picture

Just imagine if the numerous problems facing japan's economy has been handled decisively but incrementally over the past decades as understanding of them emerged.  Japan wouldn't be in the predicament they are now.  

Oh, wait..That goes for the United States, too.  For all these decades when those that wanted to make incremental changes were villified in 99% of the press and news outlets.  And the sheeple bought into the press' view hook, line and sinker.  Now look where we are.

Mon, 01/06/2014 - 13:59 | 4304812 CrashisOptimistic
CrashisOptimistic's picture

Japan has no oil.

Japan has no nat gas.

Japan has no coal.

Japan has 128 million people.

Japan has no hope whatsoever.  The above combination is lethal. 

Mon, 01/06/2014 - 14:19 | 4304909 malikai
malikai's picture

Perhaps in many societies, there comes a time when it is more profitable to destroy, rather than create.

Maybe the tale of economics (natural resources) inspires that.

Mon, 01/06/2014 - 13:47 | 4304751 Ranger_Will
Ranger_Will's picture

The Great Master of the Shinzo Shogunate has spoken!

Prosperity shall continue to rain down from heaven upon the blessed island of the sun goddess Amatrasu!

Now people of Japan, your shogun has called upon you to continue accepting the goodness of his majesty while poking China with a stick.  Have no fear however, should they strike the Ally from the West, shall send forth a kamikaze, the great wind of military might to save us all.

What a deluded fool.

Mon, 01/06/2014 - 23:34 | 4306752 StychoKiller
StychoKiller's picture

"Join me or die, you can do no less!" -- Mr. Sparkaru

Mon, 01/06/2014 - 13:46 | 4304756 alphamentalist
alphamentalist's picture

And I thought Obama was delusional

Mon, 01/06/2014 - 13:54 | 4304783 Nobody For President
Nobody For President's picture

Well, he is.

Then there's that guy in France...

Maybe delusional is part of the job description for presidents, rulers, dictators, leaders - whatever.

Mon, 01/06/2014 - 14:12 | 4304890 Toolshed
Toolshed's picture

I think you guys are confusing delusion with deceit.

Mon, 01/06/2014 - 14:22 | 4304918 malikai
malikai's picture

Yes.

They're not leaders. They are misleaders.

Mon, 01/06/2014 - 13:57 | 4304815 Spungo
Spungo's picture

It's Japan. They invented crystal meth, so what do you expect?
(Akira Ogata, 1919)

Mon, 01/06/2014 - 22:49 | 4306585 o2sd
o2sd's picture

So would you say Japan is now breaking bad?

 

Mon, 01/06/2014 - 13:48 | 4304772 Hedgetard55
Hedgetard55's picture

Abe is the first leader to "reboot the collective psyche" of a whole nation. Good luck, Sons of the Rising Sun.

Mon, 01/06/2014 - 13:48 | 4304774 Dr. Engali
Dr. Engali's picture

It's funny how he has embraced Abenomics in the same manner that Zero embraced the term Obamacare. These narcissists will both be drug down by their enormous egos.

Mon, 01/06/2014 - 13:52 | 4304784 Ranger_Will
Ranger_Will's picture

I was thinking the same thing while reading this doc.  Well it didn't turn out well for Narcissus and it won't turn out well for them.  The real problem is that they are going to keep the fools staring into the pool of eternal progressive lovelyness until we all either starve or get shot.

Mon, 01/06/2014 - 14:54 | 4305038 OwnSilverPlayMusic
OwnSilverPlayMusic's picture

Unlike Narcissus, O and Abe won't drown.  They will suffocate up their own asses.

Mon, 01/06/2014 - 14:02 | 4304817 ebworthen
ebworthen's picture

"...we have rebooted Japan's collective psyche."

Hoo-boy!

That right there should have every Japanese citizen worried, very worried.

Mon, 01/06/2014 - 15:13 | 4305107 Colonel Klink
Colonel Klink's picture

They must have hit CTLR ART DERETE!

Mon, 01/06/2014 - 14:22 | 4304852 Atomizer
Atomizer's picture

Let’s recap: Country-dwellers have been granted the illusion to vote a public servant into office to perform projected duties. After public servant is in office, the role of public servant is now mandated by Government knows best thru means of long term Central Planning strategies.

/Hahahahahaha

 

Measures how a society ranks on a spectrum stretching from democracy to despotism.

https://archive.org/details/Despotis1946

Mon, 01/06/2014 - 14:27 | 4304942 NotAMathWhiz
NotAMathWhiz's picture

The 'surprise' will be when Japanese workers start getting paid with ¥1 trillion notes.

Mon, 01/06/2014 - 14:35 | 4304988 SurlysonofaBitch
SurlysonofaBitch's picture

Japan is toast, radioactive toast.

Mon, 01/06/2014 - 14:45 | 4305016 Freewheelin Franklin
Freewheelin Franklin's picture

Let's see. There's the Labor Theory of Value. The Subjective Theory of Value. Now, we have the Governmental Theory of Value.

What could possibly go wrong?

 

I smell price controls. 

Mon, 01/06/2014 - 14:54 | 4305039 GeorgeHayduke
GeorgeHayduke's picture

The ONLY thing Abe and Japan's government should be focused on right now is containing Fukushima. Everything else is just painting walls and remodeling rooms in a house while the basement's on fire and they can't put it out.

Mon, 01/06/2014 - 15:15 | 4305104 Colonel Klink
Colonel Klink's picture

Abe knows best BECAUSE HE'S LYING GOVERNMENT SCUMBAG!  Just like our glorious and exalted king.

Mon, 01/06/2014 - 16:03 | 4305259 Dudeskis
Dudeskis's picture

He wants to repatriate production AND increase wages.

Increase wages
Repatriate production

Hrmmmm. I'm trying to wrap my mind around both at the same time and getting an error.

Mon, 01/06/2014 - 17:25 | 4305545 Spungo
Spungo's picture

It shows how stupid the guy is. Keynes referred to a problem of "sticky wages" where wages are difficult to cut in order to match deflation when the economy is bad (workers go on strike if their pay is cut). The solution is to introduce inflation. This causes everyone to get an automatic pay cut every year. To increase exports, all you do is print money until everybody's wage goes down in real terms, and this makes exports more competitive. This only works if wages stagnate while inflation rages. Asking companies to give raises actually cancels out the whole point of causing inflation in the first place.

Mon, 01/06/2014 - 23:25 | 4306723 StychoKiller
StychoKiller's picture

Chevy Chase: "Heh, heh, You're both right; new Shimmer™ is a floor wax AND a dessert topping!"

Mon, 01/06/2014 - 23:22 | 4306710 StychoKiller
StychoKiller's picture

[quote]Japan’s companies are no longer poorly capitalized.[/quote]

That reminds me, whatever became of the Olympus Corp. fraudsters?

Mon, 01/06/2014 - 23:42 | 4306776 StychoKiller
StychoKiller's picture

[quote] This is the essence of the wage surprise. It will be an entirely new phenomenon, one that, together with the massive ¥5 trillion fiscal stimulus, will more than offset the potential negative effect of a sales-tax increase. [/quote]

The phrase "Unicorns pooping Skitters™" springs to mind.

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